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Labour Market Briefing – London Economic Region in November 2016

By Emilian Siman

Mixed results: successful in certain aspects while unsuccessful in other aspects of the regional labour market

The year is almost done. December is here and most of us will soon start writing resolutions for the year to come. Certainly, this won’t be feasible without a look back upon the year past or even longer. With the same mindset, we looked back at the behavior of the “unemployment rate” in London Economic Region and discovered that success has been achieved on this labour market indicator. Figure 1 illustrates several issues. First, since the end of 2008 – beginning of 2009, when the great recession set in Canada, a constant improvement upon lowering the unemployment rate has been achieved at various geographical levels, nationally, provincially, regionally, or locally. Secondly, the same figure shows that during 2015-2016 the unemployment rates dropped towards historic lows, signaling a tightening of the labour markets at all geographical levels. Third, during 2015-2016, after a very long period, the regional unemployment rates dropped below the national and provincial levels, which indicates regional success.

Source: Statistics Canada, CANSIM, table 282-0122

Figure 1

Table 1. Selection of unemployment rate data [%]

Oct-15

Nov-15

Oct-16

Nov-16

change Oct-Nov 2015

change Oct-Nov 2016

change Nov 2015-2016

Canada

6.8

6.4

6.8

6.3

-0.4

-0.5

-0.1

Ontario

6.8

6.4

6.6

5.9

-0.4

-0.7

-0.5

London Economic Region [3560]

6.6

6.1

5.8

5.5

-0.5

-0.3

-0.6

Source: Statistics Canada, CANSIM, table 282-0122

On the moth-to-month change (October-to-November 2016), the province exhibited the largest improvement (-0.7%) in the unemployment rate while London Economic Region achieved a slightly lower improvement (-0.3%), see Table 1. When comparing the month-to-month change last year vs. current year, one could see a more consistent change of unemployment rates among the compared geographical units during 2015 relative to 2016. Finally, in an over a year monthly comparison (November 2015 vs. 2016), one would observe a larger improvement of the unemployment rate in London Economic Region (-0.6%) than nationally, or provincially.

Unfortunately, not the same overall success can be reported about the participation rate. On the contrary, since the great recession start, one could observe a continuous downward slope general trend line defining the results for this labour market indicator, see Figure 2. Even more unpleasant to observe is the fact that after the great recession start, the participation rate in the London Economic Region slipped under the national and provincial levels. The good news seems to be that the downward trend in participation rate corrected itself sometime during 2015, although a larger variability of the results seems to characterize the results in 2015-2016. A closer look at the more recent results indicates that in November 2016 the participation rate dropped by 1.4% relative to October 2016, which is similar to the prior year, see Table 2. On year-over-year comparison (November 2015 vs. 2016), the loss in the participation rate in the London Economic Region looks even more dramatic, by 2.6%. Within the same time frame comparison, at the national and provincial levels, the change in participation rates appears to be smaller than for the London Economic Region. Several explanations have been offered by the literature for this phenomenon. The most viable considers a number of factors acting in concert on the current labour force, among which are the aging population, the increasing level of education, the weak labour demand and uncertain business confidence in investing, discouragement and residual effects of the recession upon certain age groups, low wages, government counter cycling policies, and other (Mathur, A. and McCloskey, A., 2016).

Source: Statistics Canada, CANSIM, table 282-0122

Figure 2

Table 2. Selection of participation rate data [%]

Oct-15

Nov-15

Oct-16

Nov-16

change Oct-Nov 2015

change Oct-Nov 2016

change Nov 2015-2016

Canada

66.3

65.7

66

65.5

-0.6

-0.5

-0.2

Ontario

65.5

64.8

65.1

64.5

-0.7

-0.6

-0.3

London Economic Region [3560]

65.5

64.1

62.9

61.5

-1.4

-1.4

-2.6

Source: Statistics Canada, CANSIM, table 282-0122

Some of these explanations have been explored in our past labour market briefings. Without diving further on any particular factor, I would like to mention that according to Arronson, Galbis-Reig, Cajner, Smith, Fallick and Wascher (2014) this trend will continue to stay with us for a while unless carefully crafted policies are put at work. Needless to say, a lower participation rate leads to reduced economic growth, reduced earnings, and tax collections.

A similar story unfolds for the employment rate. The labour market was less successful on this indicator, see Figure 3. Since the end of 2008 the London Economic Region’s employment rate laid below the national and provincial rates. One can observe a general drop in the employment rates towards an average of 60%, following a flat trend since the end of 2008.

Source: Statistics Canada, CANSIM, table 282-0122

Figure 3

Table 3. Selection of employment rate data [%]

Oct-15

Nov-15

Oct-16

Nov-16

change Oct-Nov 2015

change Oct-Nov 2016

change Nov 2015-2016

Canada

61.8

61.4

61.5

61.4

-0.4

-0.1

0

Ontario

61.1

60.7

60.9

60.7

-0.4

-0.2

0

London Economic Region [3650]

61.2

60.2

59.2

58.2

-1

-1

-2

Source: Statistics Canada, CANSIM, table 282-0122

The seasonal variations is present every year making one month more interesting than another, however, the overall horizontal trend is distinguishable to the naked eye. Focusing on the more recent data, see Table 3, one can discover larger changes in month-to-month and over-a-year comparisons in the unemployment rate for London Economic Region than for national and provincial rates.

Source: Statistics Canada, CANSIM, table 282-0122

Figure 4

As Figure 4 illustrates, employment grew in the London Economic Region at a low rate, especially in the past two years, which indicates partial success. The full-time employment appears to have experienced a higher growth than part-time employment. Part-time employment in the region looks as it had a very week, almost flat, evolution in the past fifteen years.

However, focusing on the recent results, one could see a drop in employment in the region during November relative to October of 2016, about 5,800 jobs (see Table 4). This number results from a loss of approximately 8,900 full-time jobs and an addition of about 3,100 part-time jobs during November of 2016. In a year-over-year comparison, during November of 2016 employment in the London Economic Region was lower than employment in the region during the same month of 2015, by about 8,500 positions. As shown in Table 4, within the same time-frame comparison, a larger loss was experienced in full-time employment while a small a growth was experienced in part-time employment. These results shadow somewhat the earlier announced partial success for this labour market indicator.

Although the 2016 year started with great projections for the growth of Canadian economy due to factors such as a lower value of the Canadian dollar and greater export prospects, lower fuel prices, the economic recovery of the largest trading partner – the USA, negotiations of new trading partnerships, etc., in fact fewer materialized during the year as underlined by Export Development Canada (December 2016) in its “Export Performance Monitor.” The dismal gains in exports during October of 2016 were supported by pricing, which was generated by a monthly depreciation of the Canadian dollar relative to the US dollar in October. Only four sectors of 11 gained in export during the October of 2016. Similar mixed results were present during the year.

These observed mixed regional labour market results are in synchronicity with the somewhat uncertain evolution of the national and international economic environment during 2016.

Our resolution is to look optimistic to the future year and hope for a turning momentum for the national, provincial and regional economic growth as most of the fundamental economic variables are well aligned and meet their required values. We look for improved national, provincial and regional policies to stimulate investment and economic growth.